Most Taxpayers and conveyancers will be aware of the fact that HMRC can charge penalties for an incorrect SDLT return or amendment resulting in a loss of tax, but what is often overlooked is that HMRC will also charge interest on any sums of underpaid tax from the date the tax was due until the date of repayment.
How much interest will I be charged?
HMRC’s interest rates increase and decrease in line with the Bank of England base rate but the rate for late payments is currently 4% above the base rate, meaning that from 6 April 2025 the interest HMRC will charge on any underpaid SDLT is 8.5%!
When you add this to the amount of tax underpaid it can mean that a Taxpayer is left with a hefty bill.
Will HMRC pay me interest if I overpay SDLT?
Yes, but unfortunately (and perhaps not unsurprisingly), not at the same rate. Interest paid on overpaid SDLT (the “repayment rate”) is calculated at 1 percentage point under the Bank of England base rate with a lower limit of 0.5%.
The full table of interest rates over time can be found here.
Why are the rates different?
HMRC state that the reason for the high late payment interest rate is to “encourage prompt payment” and to “ensure fairness for those who pay their tax on time” whilst the repayment rate “compensates taxpayers fairly, when they overpay, for loss of use of their money”.
In reality the interest rate charged by HMRC for late payments is punitive, particularly when you consider the time it takes HMRC to issue a compliance check and to conclude that check once it has been opened.
Repayment interest will accrue each day that the tax remains unpaid, so for a sum of £10,000 where a compliance check is issued 8 months after the return was due and HMRC takes 12 weeks to issue a closure notice the interest will already be £850 before you even consider the time it will take to appeal the closure notice, request an internal review and if necessary, appeal to the Tax Tribunal. It is very easy to envisage a situation where the Taxpayer will face in excess of 2 years worth of interest.
For most Taxpayers this will be a financial burden they may not have considered or been warned about.
Surely I can appeal the interest?
No, the interest is not something which can be appealed to HMRC or to the Tribunal and if you have underpaid your SDLT you will have to pay the full amount of interest due.
We would however advise that you carefully check the calculations to ensure that you have not been overcharged. HMRC can only charge interest from the date the tax was due or, in the case of an amendment resulting in a refund of SDLT, from the date of repayment. We have successfully challenged HMRC’s interest calculations in the past where they had attempted to include periods when the tax was not late.
SDLT is a complex area of taxation and you should always seek advice from a professional specialising in SDLT before the SDLT return is submitted or before any amendment is made which results in a refund.
Relatus are property tax advisors specialising in SDLT, we can advise you as to the correct amount of SDLT so that you avoid any potential interest charges. We can also help if you have received a compliance check.
Get in touch with the team today to find out how we can help.
